Audit collapse leaves Broward Health on shaky ground | Editorial

By Sun Sentinel Editorial Board

Sep 13, 2016 | 8:34 AM

If the consequences weren't so dire, you'd buy popcorn and watch the drama playing out at Broward Health, the public hospital system that home and business owners north of Griffin Road support with property tax dollars.

But there's a lot riding on Monday's news that the public hospital system has parted ways with KPMG, its internationally known auditing firm, over the scope of its annual audit.

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In a Friday letter to the firm, board Chairman Rocky Rodriguez said KPMG partner Karen Mitchell made inconsistent statements about whether her office could complete the audit by Dec. 1, the deadline set by banks and bond markets that have a financial stake in Broward Health.

"The response we received today failed to provide the clarification the board requested," Rodriguez wrote. Instead, he said KPMG unilaterally invoked its termination clause and volunteered to waive its 120-day notice period. And without waiting for Wednesday's emergency board meeting, Rodriguez unilaterally accepted KPMG's decision to walk away.

So two months before a critical deadline, Broward Health must quickly find another accounting firm willing to audit a big public healthcare company facing a swirl of state and federal investigations into possible corruption, plus a federal corporate integrity agreement for having made illegal payments to doctors.

Clearly, a clean audit — done in accordance with accepted auditing standards — is needed to assure government payers, bond rating agencies and taxpayers that the multibillion-dollar healthcare system is properly managed. The last thing the beleaguered district needs is to further rattle confidence and trigger a downgrade that could increase borrowing costs.

Two years ago, the last time Broward Health put out an RFP for an auditing company, it received bids from KPMG, Ernst and Young, and Grant Thornton. But its previous auditor, PricewaterhouseCoopers, did not bid for the work. Neither did Deloitte Touche, a firm it had expected to bid.

Not so long ago, accounting firms fiercely competed for Broward Health's auditing contract. This time around, you can bet any firm approached about the work will want to know why KPMG walked away. Indeed, it would be professional malfeasance for them not to investigate what created the district's standoff with its independent auditors.

From what Rodriguez said, the board was concerned that Mitchell had said her firm couldn't complete its forensic audit until the corruption investigations were completed.

But at a board meeting last week, Mitchell says she didn't say that or that she was misunderstood. Besides, this board knows from experience that audited financial statements can be delivered with caveats, as they've seen too many times in recent years.

The bigger deal, really, was that the board wanted to muzzle KPMG's questions into today's corruption investigations.

Specifically, the board didn't want the auditors asking about federal or state grand jury investigations, interviewing employees involved in such investigations or seeing what the hospital system may use in its defense. A contract addendum said the company was responsible only for verifying that financial statements were not fraudulent. It essentially said the corruption investigations were none of KPMG's business and that the board would let auditors know of anything they might need to know.

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Who does that?

What government entity tells a public accounting agency what it can and cannot see?

And what is it these board members didn't want KPMG auditors to know?

By definition, KPMG's independent auditors are certified PUBLIC accountants. It is the public to whom they owe their duty, not insiders — including board members — some of whose actions are under review.

If an auditing company cannot be independent, how can the public be confident it will deliver a clean report?

After all, no company wants to be the next Arthur Andersen, the former Big Five accounting firm that collapsed amid criminal charges that it looked the other way in the Enron scandal. If an accounting firm fails to perform due diligence, it risks lawsuits from bond holders and others.

Besides, what happened to all those promises about transparency? When Gov. Rick Scott sent his inspector general to investigate contract awards and board member behavior in January, the board promised to throw open the file cabinets. What changed?

KPMG's call for a forensic audit was no surprise. Mitchell put the system on notice after the suicide of its chief executive officer, the sudden departure of its chief financial officer, the arrival of the state's inspector general and the talk of an FBI corruption investigation.

But over the last seven months, long after the audit should have begun, certain board members pushed back against the scope. In doing so, they also ignored the advice of their chief executive officer, their chief financial officer, their internal auditor and their Audit Committee, all of whom wanted KPMG to do the work.

In the end, the auditing firm said the board's demands were unacceptable. It said a client cannot tell independent auditors what can and can't be reviewed. It said it couldn't ignore whether fraud or illegal acts had occurred.

As Broward Health scrambles to find another firm, we hope board members don't personally get involved in recruitment efforts. It's a board member's job to set policy and oversee the executive staff, not procure vendors. Indeed, KPMG had asked for information about a board member's prior possible involvement in contacting vendors. Let's not go down that road again.

As we always note when writing about Broward Health, the system boasts many excellent front-line professionals doing great work to preserve and prolong people's lives at its four hospitals, 11 primary care clinics and three urgent care centers.

But we scratch our heads about what's happening at the governance level.

Is the board deliberately trying to destabilize the public hospital system to force a sale to a private company, as some suggest?

Is it time Broward County had some say in the people who oversee this locally owned system, rather than continuing to cede all appointments to Gov. Scott, who has a clear distaste for public hospitals?

Is it time Broward Health merged with its neighbor to the south, the publicly owned Memorial Healthcare System, which enjoys a better bottom line and a lot less turbulence?

We're a big believer in the historic role public hospitals have played in providing care to poor people, without having to pay Wall Street dividends.

And we've got to believe that all members of this board are well-meaning and dedicated to the district's mission of public service.

But we're disappointed they refused to open the file cabinets and let the public's auditors see what they wanted to see.

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Instead, they've launched a mad scramble to find another firm willing to audit the system in a way that they think is best.